The Carillion bankruptcy has certainly helped shine a spotlight on late payments in the United Kingdom. Many trade groups have advocated for change in the way payment terms are handled by the government — and for repercussions when it comes to late payments.
Amid the latest news, the Federation of Small Businesses (FSB) said larger firms that pay their suppliers late should be stripped of government contracts. The Guardian reported that late payments have led to as many as 50,000 company closures annually, and that the economic cost over that same time frame is £2.4 billion. The firms themselves owed tens of billions of pounds.
FSB officials have stated that the Prompt Payment Code — which was signed by Carillion before the company went bankrupt at the beginning of the year after owing £1 billion — has no real impact on changing the late payments landscape. Against that backdrop, the FSB said that some sort of sanctions against the larger firms should be put into place, including the aforementioned ban from government business.
The FSB noted that 84 percent of its member firms said they have been paid late regularly. In addition, at least one third of firms have said that a quarter of payments arrive later than their agreed upon terms.
According to Financial Times(FT), FSB National Chairman Mike Cherry said that, despite a number of government initiatives over the past several years to address late payments, the situation has only gotten worse. As reported, the Carillion failure led to insolvencies in the first quarter of the year, spiking by 20 percent over last year, as estimated by accounting firm Moore Stephens.
In the FT report, Cherry said, “One member told me he was put on terms of 180 days. Our members are providing the working capital of big companies.”
Earlier in the year, Hitachi Capital Business Finance estimated that as much as 17 percent of business owners had stopped allowing themselves any salary so they could pay their staff instead, as payments had been slow coming into their respective firms.
Sears In Suit Over Unpaid Invoices
Separately, in the United States, Sears has filed for bankruptcy, as a plethora of headlines have noted. The filing, of course, has had a ripple effect up and down the once-mighty retailer’s supply chain. Before the company filed for Chapter 11, Sears had halted payments to some of its suppliers.
Last week, news came that a lawsuit was filed on behalf of a Sears supplier, which centers on roughly $840,000 in unpaid invoices. The supplier, InGear Fashions, has had a relationship in place with the company that stretches back to 2012. The suit, filed in Chicago, also alleges that Sears misrepresented its financial situation.
Cross-Border Invoicing Initiatives
In a nod toward streamlining payments and invoicing processes, Australia and New Zealand are combining efforts to create standards for electronic invoices — efforts that may save as much as $30 billion over 10 years. The partnership will come in the wake of an Australian Tax Office initiative that began two years ago, which had moved for the country to adopt eInvoicing standards.
More recently, Australia’s Treasury released a paper this past week that detailed the creation of a cross-Tasman body, which will oversee digital invoicing activity across both countries. Digital efforts would, of course, cut down on paper-based processes and costs. The Treasury report also said that digital invoicing would reduce errors and associated stretched payment times for businesses.